Published 5th October 2021 in Kent Business Radio
Research published in the 2021 Lumina Intelligence Low2No Alcohol Report (June 2021) shows that 30% of young people are actively choosing to avoid alcohol. And older people are cutting back or eliminating it as they want the comfort of driving to/from their destination without worry about being over the limit. So, there is clearly a market for alcohol-free drinks, but has the sector got it right?
The sector has been fuelled by some great low alcohol beers (technically they are not alcohol free, although we tend to lump them into the zero-alcohol category). These small breweries have done a great job and have helped to grow awareness of alcohol-free options, particularly in supermarkets. It’s perhaps unsurprising, then, that supermarkets are still a key channel for the no alcohol sector, with 43% of sales coming from in-store shopping and around 10% from in-pub sales.
But just because the beer brewers have got it right doesn’t mean the spirits market has hit the spot – yet. And there are a number of reasons for this. Let’s start by looking at why people are opting to drink less alcohol.
The key reasons people cite for buying a zero-alcohol drinks are: health (including weight loss and disease prevention), wanting to be able to drive, and saving money. Both health and saving money are slightly ironic justifications, as we’ll see later. In addition, the coronavirus pandemic has made us all focus on our health and lockdowns (in all their various forms) reduced drinking occasions (parties, weddings, nights out etc.). While this will likely change with the easing of restrictions, it seems that the current trend away from alcohol will continue.
In terms of in-store shopping trends, saving money on alcohol is also one of the biggest drivers (49%) but, interestingly, 16% cited the cost as a reason for not buying an alcohol-free beverage with 14% saying that they don’t represent value. And this comes to the crux of the problem with alcohol-free spirits: they are basically fancy cordials, priced the same as their alcoholic counterparts.
What’s in an alcohol-free spirit?
Most 0% beers and wines are made in much the same way as their alcoholic counterparts. Manufacturers will then typically remove the alcohol from the final product. However, alcohol is a natural preservative, helping to keep bacteria at bay, so many wine producers need to add preservatives which can be associated with negative health effects.
Zero alcohol spirits, on the other hand, are often just fancy cordials. Their main ingredient is water that has an infusion of fruit or other botanicals, with sugar and other preservatives added to kill bacteria. However, unlike beer and wine, spirits are often opened and left on a shelf for months at a time, so the quantity of preservatives needed to keep an alcohol-free drink bacteria-free is much higher.
As such, consumers’ concerns around health benefits and high costs are valid. These drinks may not contain alcohol, but they do tend to contain a lot of unhealthy preservatives and sugar, and they are usually around 99% water (with a few botanicals thrown in for flavour). So, you are buying a very expensive, not particularly healthy bottle of water for the same price as a decent bottle of spirit.
For example, a bottle of alcohol-free gin usually costs around £20 with brands like Seedlip pricing at 700ml bottle at £26 and Xachoh charging as much as £29. Hardly worth £20+ when compared to other fruit-flavoured soft drinks!
What’s more, unlike alcoholic drinks, alcohol-free spirits are required to include a list of ingredients on the label, undermining the value perception producers are trying so hard to create. Consumers are not daft – they are cottoning on to the fact these drinks don’t really contain much that justifies the price tag.
There are already quite a few players in the alcohol-free spirits sector, but the market is by no means saturated or mature. It’s still in its infancy. And for good reason. At the moment it is a novelty with too many brands jumping on the bandwagon as they see they can make small volumes with high profit margins. But, over time, 90% of these will vanish and we’ll be left with the bigger players. It always happens.
The market hasn’t yet landed on a price point that feels good value to consumers, 49% of consumers think of them as simply soft drinks, albeit perhaps more ‘premium’ soft drinks, and 11% are already sceptical about the health benefits. So, the market is wide open and has a lot of work to do if it’s to deliver something consumes really want.
Who is dominating the market now?
Gin was the first to make a big splash and there are already plenty of alcohol-free gins, even Gordons has released one. Hendricks also has its own 0% brand: Atopia. Some have aimed for a direct gin swap, like Borrago, Mary, Stillers, Strykk’s No G*N, Clean Co and Zeo, whereas others have jumped more on the trend for heavily flavoured gins, for example Everleaf, Fluere and Amplify. Most of these are simply a concentrate of Botanicals, which in my opinion, taste like spraying air freshener in your mouth.
But it’s not just gin, there are alcohol free rums too. For example, Clean Co’s Clean R, Xachoh No.7, Strykk’s Not R*M, Crossip and Ritual. All of these have a price point between £18 and £28 per bottle. How do they justify this?
In the 0% whisky sector there are fewer players, so far. For example, Free Spirits Bourbon, Celtic Soul, Ritual, Feragaia, and Fluere, all priced at over £20 per bottle.
In the alcohol-free vodka category, many of the same names appear, like Strykk and Clean Co. Plus Usko has a range of flavoured, alcohol-free vodkas. Remember, their alcoholic counterparts (in all categories) have duty included in the price – these don’t. This makes the price point seem even more of a ‘rip off’.
And the same brands currently dominate the alcohol-free tequilas; Free Spirits, Clean Co, and Ritual, with price points from £19 – £29 a bottle.
It’s still early days and there are plenty of openings for new entrants. It needs an entrepreneur with vision, and a real understanding of what consumers are looking for. A fancy cordial, with botanicals that hint at a spirit isn’t it. The opportunities are there, without a doubt, but to grasp them you need to think beyond ‘fake gins and rums’ and create a new experience for drinkers that meets their desires and their needs, especially for those who have never tasted, and have no desire to taste, a spirit.
Almost all the drinks currently available in the zero-alcohol category are simply trying to mimic Gin, Vodka, Whisky, Tequila etc. But why? Many consumers haven’t a clue what these taste like as they have never drunk alcohol.
What are the opportunities in this sector?
According to research by Portman Group, this sector is likely to grow by 34% by 2024. Many players are likely to disappear, leaving space for market leaders to dominate, just as happened in the coconut water and energy drinks market a few years ago.
While alcohol-free beer and wine is likely to be dominated by already-established breweries and wineries, the real opportunity for new players is in the spirits’ sector. This is wide open as none of the brands already in this space have really nailed it.
One of the biggest opportunities is to create zero-alcohol spirits that are actually healthy and that have a unique taste.
We know health is one of the main drivers, so these drinks need to be genuinely healthy, not just alcohol-free. Consumers don’t want artificial ingredients or no nasty preservatives and they want less sugar.
Those who continue to drink alcohol in moderation are likely to view alcoholic spirits as an occasional treat or luxury, much as they do now. They will still drink alcohol but want a healthy, tasty alternative for the days they choose to cut back – and this alternative is unlikely to be a drink ‘pretending’ to be a spirit. Rather it will be something genuinely healthy and better still, functional. Nootropics could be big for this group.
Alcoholics trying to stay sober are more likely to want ‘the real thing’ after getting a taste of the alcohol-free version, so this is not a responsible target market. Creating great tasting alternatives that are good to drink socially and don’t make you feel that you are missing out is what this sector wants, not drinks that remind you of what they are trying to avoid.
And finally, there are the under 35s, the younger drinkers who are driving the alcohol-free sector. They are the tea-totallers who simply don’t have a taste for spirits like gin and rum, so trying to mimic their flavours seems a futile and pointless exercise.
Instead, consumers want zero-alcohol spirits that offer something unique, tasty, low sugar and free-from artificial preservatives. They will pay a premium for these interesting new drink choices but are unlikely ever to pay the same as alcoholic spirits,
One way of achieving this will be to produce smaller bottles of craft drinks. Smaller bottles make it easier to maintain freshness as they’ll be consumed quicker. So, no need for lots of preservatives. They will also deliver a lower price point without impacting massively on margins. In addition, they are a great way to encourage people to try something new.
The other major opportunity is for new manufacturers to create a premium alcohol-free spirit alternative with a unique taste and character. Unique flavours will be hard to replicate and will give those who create them a huge first-mover advantage. You will be known as a pioneer of this new space and will set a standard to which other drinks will be compared. Standing out is always key – don’t follow, lead. Be a pioneer and be different.
One potentially interesting avenue may be the use of natural, plant-based nootropics ─ substances that gently alter brain chemistry. Imagine an alcohol-free spirit that tasted great and helped you feel more relaxed, or slightly buzzed, or more cognitively sharp. Each would have its own unique character and could be used in different situations, depending on the desired effect. I believe we will see some really interesting entrants into this market in the coming months. It ticks a lot of the boxes that today’s consumers are looking for.